VIDEO LECTURE NOTES —

NOT-FOR-PROFIT ENTITIES:
STATEMENT OF FINANCIAL POSITION

Statement of Financial Position

1. Assets and liabilities are reported in reasonably homogeneous groups and sequenced or
classified in ways that provide relevant information about their interrelationships, liquidity,
and financial flexibility
2. Since not-for-profits (NFPs) have an absence of ownership interests like those of business
entities, they do not have traditional equity accounts like retained earnings and common
stock

Net Asset Classifications

1. Instead, NFPs utilize net assets to account for the equity portion of their statement of finan-
cial position
2. Net assets are classified into two categories:
a. Net assets with donor restrictions
b. Net assets without donor restrictions

Donor Restriction Disclosures

1. NFPs provide information about the nature and amounts of different types of donor-imposed
restrictions either by:
a. Reporting their amounts on the face of the statement of financial position; or
b. Including relevant details in the notes to the financial statements
2. NFPs must also disclose the amounts and purposes of board-designated net assets either on
the face of the statement of financial position or in the notes

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 Not-for-Profit Entities: Statement of Financial Position

Sample Disclosure
Note J.
NFP X’s net assets with donor restrictions are subject to the following purpose or time restrictions.
Subject to purpose restrictions:
Program Omega $ 15,200
Program Iota 10,000
Facilities and equipment 20,230
45,430
Subject to time restrictions:
For periods after September 30, 20X1 25,000
Not subject to appropriation or expenditure:
Land required to be used as a recreational area in perpetuity 301,782
Total net assets with donor restrictions $372,212

Presentation of Assets
1. Cash, investments, and other assets restricted for plant asset purposes or endowment
purposes are reported as a separate line item
2. Investments in equity securities with readily determinable market values are reported at fair
value. Investment gains and losses are reported as changes in net assets without donor
restrictions unless their use is restricted by explicit donor stipulations or by law.

Works of Art
Works of art and historical treasures are treated under one of the following two approaches:
1. Capitalize all collections purchased or donated (and recognize contribution revenue equal to
the fair value of donated collection)
2. Do not capitalize the collection if the donation meets the below criteria (expenses would be
reported for purchases of collections):
a. Held for public exhibition, education, or research, not for investment purposes
b. Protected and preserved
c. Sale proceeds must be used to acquire other collection items

Contributions
1. Contributions are unconditional promises to reduce liabilities of or to contribute assets to an
organization. Conditional promises to give are not recorded as contributions receivables until
the conditions are met or the likelihood of their not being met becomes remote.
2. Contributions receivable for unconditional contributions are reported at the present value of
the expected cash flows from contributions, except that those collectible within a year may
be recorded at net realizable value

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 Not-for-Profit Entities: Statement of Financial Position

Endowment Funds
1. Endowment funds are generally established by gifts and bequests (cash, securities, etc.) to
provide a source of income for the NFP.
2. Net assets of an endowment fund are reported on the statement of financial position as
either:
a. Net assets with donor restrictions
b. Net assets without donor restrictions

Endowment Fund Disclosures

For endowment funds that are underwater, NFPs will disclose:
1. The NFP’s policy to either reduce expenditure or not spend from underwater endowment
funds
2. The aggregate fair value
3. The aggregate original endowment gift amount or level required by donor stipulations or by
law to be maintained
4. The aggregate of the amount of the deficiencies

Liquidity Disclosures
NFPs are required to provide information about liquidity by any of the following:
1. Sequencing assets according to their nearness of conversion to cash and sequencing liabilities
according to the nearness of their maturity and resulting use of cash
2. Classifying assets and liabilities as current and noncurrent (NFP business-oriented health care
entities are required to use this option)
3. Disclosing in the notes to the financial statements relevant information about the liquidity or
maturity of assets and liabilities, including restrictions on the use of particular assets

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 Not-for-Profit Entities: Statement of Financial Position

Sample Statement of Financial Position

Statements of Financial Position
September 30, 20X1 and 20X0

Assets: 20X1 20X0

Cash and cash equivalents $ 33,500 $ 42,047
Accounts and interest receivable 22,600 37,800
Inventories and prepaid expenses 5,047 7,058
Contributions receivable 52,740 44,321
Short-term investments 78,235 65,035
Land, buildings, and equipment 236,785 205,786
Long-term investments 356,458 378,256
Total assets $785,365 $780,303

Liabilities and net assets:

Accounts payable 29,053 15,089
Refundable advance 1,520
Grants payable 27,250 20,784
Notes payable 12,030 17,235
Long-term debt 82,035 87,568
Total liabilities 150,368 142,196

Net Assets:
Without donor restrictions:
Undesignated 157,671 144,800
Board designated quasi-endowment 105,114 102,434
Total without donor restrictions 262,785 247,234

With donor restrictions 372,212 390,873

Total net assets 634,997 638,107
Total liabilities and net assets $785,365 $780,303

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 Not-for-Profit Entities: Statement of Financial Position

PRACTICE QUESTIONS
Solutions to the practice questions can be found at the end of the Video Lecture Notes.

1. Which of the following financial categories are used in a nongovernmental not-for-profit

organization’s statement of financial position?
A. Net assets, income, and expenses
B. Income, expenses, and unrestricted net assets
C. Assets, liabilities, and net assets
D. Changes in unrestricted, temporarily restricted, and permanently restricted net assets

2. A statement of financial position for a nongovernmental not-for-profit organization reports

amounts for which of the following classes of net assets?
A. Current
B. Long-term
C. Net assets with donor restrictions
D. Temporarily unrestricted

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 Not-for-Profit Entities: Statement of Financial Position

PRACTICE QUESTION SOLUTIONS

1. Which of the following financial categories are used in a nongovernmental not-for-profit
organization’s statement of financial position?
A. Net assets, income, and expenses
B. Income, expenses, and unrestricted net assets
C. Assets, liabilities, and net assets
D. Changes in unrestricted, temporarily restricted, and permanently restricted net assets

2. A statement of financial position for a nongovernmental not-for-profit organization reports

amounts for which of the following classes of net assets?
A. Current
B. Long-term
C. Net assets with donor restrictions
D. Temporarily unrestricted